5 Things You Should Know About Guaranteed Universal Life Insurance | Smart Switch: Personal Finance

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Guaranteed Universal Life insurance, or GUL, is sometimes called a Goldilocks policy. Strike a balance between time and permanent life insurance that can pay off for consumers, says John Keddy, a senior director at Aite-Novarica Group, a financial advisory firm.

But this type of coverage represents only 1% of individual life insurance sales in the US, according to LIMRA, a life insurance trade group. For comparison, whole life and term life policies account for 86% of sales. So, with such a small market size, is guaranteed universal life insurance the hidden gem of life insurance, or does it not offer the best of both worlds?

Here are five things to know before you buy a guaranteed universal life policy.

1. Coverage is essentially lifetime

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Like term life, guaranteed universal life has a fixed duration. But instead of choosing the length of the term, you choose the age at which coverage will end, usually between ages 90 and 121. Because it is quite rare to live into the upper end of this age range, guaranteed universal life is essentially considered lifetime coverage.

In some cases, you can choose a lower maturity age, such as 70 years. The younger the age, the cheaper the premiums because the more likely the policy will survive.

You may be able to extend coverage if you reach expiration age, but the new premiums could be significantly more expensive.

2. Cash value growth is minimal

Cash value accounts are an investment feature of permanent policies such as whole life insurance, which funnel part of the premium into an account that grows over time. While guaranteed universal life policies technically have a cash value account, they don’t accumulate enough growth to compete with permanent coverage.

If you are looking for coverage with significant investment opportunities, you may want to consider cash value life insurance Policies that focus on growth.

3. Premiums are cheaper than whole life

Guaranteed universal life insurance is less expensive than permanent coverage, such as whole life, because it doesn’t prioritize cash value growth. This may appeal to applicants looking for simple, low-cost, lifetime coverage. If you’re older and not interested in making an investment, guaranteed universal life insurance provides a way to get coverage for the rest of your life, says Ken Toffolo, a member of the Aite-Novarica Group research council.

Compared to regular universal life insurance, guaranteed universal life premiums for older applicants are similar. But the cash value account in a universal life policy is more complicated, and managing the ups and downs of an investment may not be something you want to take on.

4. Coverage may be adequate for the elderly

Life insurance rates are generally based on age and health, which means they are affordable life insurance for seniors can be hard to find. Term life insurance is the cheapest option on the market, but it is often not available to applicants in their 80s. And whole life policies can get very expensive later in life.

This is where guaranteed universal life policies can help fill the gap. It leans toward term rates when term life insurance is no longer available, Toffolo says, and it’s less expensive than a whole life policy later in life. Additionally, guaranteed universal life policy issuance ages can go as high as 80, making coverage available to older applicants.

A $100,000 guaranteed universal life policy for an 85-year-old woman costs $1,134 a month, according to 2022 data from Quotacy, an insurance broker. To compare, a whole life policy for the same applicant costs $1,420 a month, about 25% more.

5. The death benefit and premiums are flexible

Guaranteed universal life insurance offers a bit of flexibility, which is probably what makes it attractive, says Scott Holeman, director of media relations for the Insurance Information Institute, a trade group.

Like other types of universal life insurance, guaranteed universal life insurance offers the ability to adjust the amount of coverage, the length of the policy, or the frequency of payments as your needs change.

Some policies also come with a return of premium clause. Life insurance riders are features you can add to a policy to customize coverage. A return of premium rider refunds some or all of the premiums you’ve paid if you cancel the policy, usually within a specified period of time.

before buying

Choosing the right type of life insurance often comes down to your individual needs. Ask yourself why you need coverage. “If you’re young, buy forward; you can always switch to something else,” says Toffolo. Term life insurance is usually enough for most families.

However, if cash value growth isn’t a priority, and you want a comparatively low-cost coverage solution that’s likely to last a lifetime, guaranteed universal life may be worth considering.

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